Correlation Between Aqr Small and Gmo Asset

Can any of the company-specific risk be diversified away by investing in both Aqr Small and Gmo Asset at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Aqr Small and Gmo Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aqr Small Cap and Gmo Asset Allocation, you can compare the effects of market volatilities on Aqr Small and Gmo Asset and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Aqr Small with a short position of Gmo Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aqr Small and Gmo Asset.

Diversification Opportunities for Aqr Small and Gmo Asset

0.27

Correlation Coefficient

Aqr Small  Gmo Asset

Modest diversification

The 3 months correlation between Aqr and GMO is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Aqr Small Cap and Gmo Asset Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Asset Allocation and Aqr Small is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Aqr Small Cap are associated (or correlated) with Gmo Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Asset Allocation has no effect on the direction of Aqr Small i.e., Aqr Small and Gmo Asset go up and down completely randomly.

Pair Corralation between Aqr Small and Gmo Asset

Assuming the 90 days horizon Aqr Small Cap is expected to under-perform the Gmo Asset. In addition to that, Aqr Small is 1.18 times more volatile than Gmo Asset Allocation. It trades about -0.22 of its total potential returns per unit of risk. Gmo Asset Allocation is currently generating about 0.31 per unit of volatility. If you would invest  1,775  in Gmo Asset Allocation on December 5, 2024 and sell it today you would earn a total of  123.00  from holding Gmo Asset Allocation or generate 6.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Aqr Small Cap  vs.  Gmo Asset Allocation

Aqr Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aqr Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Gmo Asset Allocation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gmo Asset Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Gmo Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aqr Small and Gmo Asset

The main advantage of trading using opposite Aqr Small and Gmo Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aqr Small position performs unexpectedly, Gmo Asset can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Gmo Asset will offset losses from the drop in Gmo Asset's long position.

The idea behind Aqr Small Cap and Gmo Asset Allocation pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.